Second EMI profit alert in five weeks puts pressure on Nicoli

EMI shares crashed 12 per cent after the music group issued its second profits warning in five weeks, piling further pressure on the chief executive, Eric Nicoli.

The company said that full-year revenue and profits would be significantly lower than City expectations as a result of "continued and accelerating deterioration in market conditions" in North America this year. EMI shares plunged 28.75p to 210.75p.

It said there was "an unprecedented level of market decline" and an "exceptionally high level of product returns". It cited industry data which pointed to a 20 per cent drop in the physical music market.

EMI said sales at its recorded music division in the year to March would be 15 per cent down on last year's figures while profits would miss market forecasts. In January, the company said sales would decline by up to 10 per cent.

The US is the world's largest music market but EMI has struggled to grow market share there despite having artists like the Beatles in its stable.

Mr Nicoli also took on the role of head of recorded music in January after ousting Alain Levy. Some shareholders have expressed concern over Mr Nicoli's continued tenure at the world's third-largest music company given its poor performance over recent years. In January, a profits warning was issued after disappointing album sales from key artists such as Robbie Williams over the crucial Christmas trading period.

Yet the success of the new album from Norah Jones and the merger of EMI's Capitol and Virgin record labels in the US had raised hopes that the company had started to turn the corner.

JF Cecillion, recently appointed as head of EMI Music International, told delegates at the 3GSM mobile conference in Barcelona on Tuesday that Jones's new album had sold an impressive 3 million in two weeks and reached No 1 in 26 markets around the world. He boasted that the album was the fastest selling record this year only six weeks into 2007. Yet yesterday the company was having to sing a very different tune, putting out its profits warning on the day of the Brit Awards, the biggest event of the year for the UK music industry.

EMI said that the tough market conditions reinforced its decision to embark on a cost-cutting and restructuring programme to position its business better to deal with increased levels of online piracy and declining CD prices. "To date, good progress is being made with the restructuring initiatives ... and the group is on track to deliver £110m of cost savings in full and on time," the company said.

EMI's woes are likely to lead to renewed calls for a merger with Warner Music, the world's fourth-largest music company. Yet a resurrection of talks is unlikely before the European Commission completes its re-examination of the 2003 merger of Sony's and Bertelsmann's music operations.

EMI has been linked with a move to allow consumers to buy its music unencumbered by digital rights management, or DRM, software that protects music purchased online against piracy. Mr Cecillion appeared open to the idea, saying: "We will try every opportunity as long as it's legal and can be monetised". However, Edgar Bronfman Jr, head of Warner Music, told 3GSM delegates in a separate presentation: "From a DRM perspective, we can all agree that intellectual property should have some form of protection".